The Railway Builders Part 5

[2] The Northern Pacific was at many stages in its history closely connected with Canadian affairs. It had originally been projected in New England: the first proposal was to use the Central Vermont and a Canadian road to be built or acquired as the eastern links, then, crossing into Michigan, the railway was to strike northwestward to the Pacific. When control fell into the hands of New York and Philadelphia interests, these plans were dropped, but later the new management negotiated with Governor Archibald of Manitoba, as well as with Sir John Macdonald, to endeavour to put through an international road, the first section running through Canada to Sault Ste Marie, the second through Michigan and Minnesota, the third through the Canadian plains, and the fourth through the Rockies to the sea on American territory.

Nothing came of the negotiations, though it may be noted that the Canadian Pacific to-day has carried out precisely this plan, in addition to its all-Canadian line.

[3] This correspondence will be found in the Journals of the House of Commons, vol. vii, 1873. In no other doc.u.ments available to the public has the connection between politics and railway promoting in Canada been made so evident. The following are a few brief extracts from letters addressed by Sir Hugh Allan to various American a.s.sociates during 1872:

Thinking that as I had taken up the project there must be something very good in it, a very formidable opposition was organized in Toronto, which for want of a better took as their cry 'No foreign influence; no Yankee dictation; no Northern Pacific to choke off our Canadian Pacific,' and others equally sensible.... I was forced to drop ostensibly from our organization every American name, and put in reliable people on this side in place of them.... Mr M'Mullen was desirous of securing the inferior members of the Government, and entered into engagements of which I did not approve, as I thought it was only a waste of powder and shot. On a calm view of the situation I satisfied myself that the decision of the question must ultimately be in the hands of one man, and that man was Sir George E. Cartier, the leader of the French party, which held the balance of power between the other factions.... It was evident that some means must be adopted to bring the influence of this compact body of men to bear in our favour, and as soon as I made up my mind what to do, I did not lose a moment in following it up. A railroad from Montreal to Ottawa, through the French country, north of the Ottawa river, has long been desired by the French inhabitants; but Cartier, who is a salaried solicitor of the Grand Trunk road, to which this would be an opposition, has interposed difficulties, and by his influence prevented it being built.... The plans I propose are in themselves the best for the interests of the Dominion, and in urging them on the public I am really doing a most patriotic action. But even in that view, means must be used to influence the public, and I employed several young French lawyers to write it up in their own newspapers. I subscribed a controlling influence in the stock, and proceeded to subsidize the newspapers themselves, both editors and proprietors. I went to the country through which the road would pa.s.s, and called on many of the inhabitants. I visited the priests and made friends of them, and I employed agents to go among the princ.i.p.al people and talk it up. I then began to hold public meetings, and attended to them myself, making frequent speeches in French to them, showing them where their true interests lay ... and I formed a committee to influence the members of the Legislature. This succeeded so well that in a short time it had 27 out of 45 on whom I could rely, and the electors of the ward in this city, which Cartier himself represents, notified him that unless the contract for the Pacific Railway was given in the interests of Lower Canada he need not present himself for re-election....

The policy adopted has been quite successful, the strong French influence I succeeded in obtaining has proved sufficient to control the elections, and as soon as the Government realized this fact, which they were unwilling to admit and slow to see, they opened negotiations with me.... Yesterday we entered into an agreement, by which the Government bound itself to form a Company of Canadians, only according to my wishes. That this Company will make me President, and that I and my friends will get a majority of the stock, and that the contract for building the railroad will be given to this Company, in terms of the Act of Parliament. Americans are to be carefully excluded in the fear that they will sell it to the Union [_sic_] Pacific, but I fancy we can get over that some way or other. This position has not been attained without large payments of money. I have already paid over $200,000, and will have at least $100,000 more to pay.

[Ill.u.s.tration: Railways of Canada, 1880]

{131}

CHAPTER VIII

BUILDING THE CANADIAN PACIFIC

The Minnesota Venture--Canadian Pacific Syndicate--The Contract--Political Opposition--Terms of the Contract--Organizing the Company--Financing--Construction

In the months and years that followed, no men were so much in the mind and speech of the Canadian public as the members of the new syndicate.

The leading members were a remarkable group of men. Probably never in the history of railway building, not even in the case of the 'Big Four'

who built the Central Pacific--Huntingdon, Stanford, Crocker, and Hopkins--had the call of the railway brought together in a single enterprise men of such outstanding individuality, of such ability and persistence, and destined for success so notable.

The Canadian Pacific was not their first joint enterprise. It was the direct outcome of a daring venture in connection with a bankrupt Minnesota railway, which had brought them wealth beyond their wildest dreams, and had definitely turned their thoughts to railway work.

Early in the settlement of the northwestern {132} states the need of railways, and of state aid to railways, was widely realized. In 1857 Congress gave the territory of Minnesota a large grant of public lands to use in bonusing railway building, and in the same year the legislature of the territory incorporated a company, the Minnesota and Pacific, to build from Stillwater through St Paul and St Anthony's Falls (Minneapolis) to Red River points. The state gave the new company millions of acres of land and a cash subsidy, munic.i.p.alities offered bonuses, and a small amount of stock was subscribed locally.

Five years pa.s.sed, and not a mile had been completed. The company, looted into insolvency by fraudulent construction company contracts, was reorganized as the St Paul and Pacific, heir to the old company's a.s.sets but not to its liabilities, and a beginning was made once more.

Trusting Dutch bondholders lent over twenty millions, and by 1871 the road reached Breckenridge on the Red River, two hundred and seventeen miles from St Paul. Again a halt came. Russell Sage and his a.s.sociates in control had once more looted the treasury. The Dutch bondholders, through their agent, John S. Kennedy, a New York banker, applied for a receiver, and in 1873 one Jesse P. Farley was {133} appointed by the court. It seemed that the angry settlers might whistle in vain for their road.

In St Paul at that time there lived two Canadians who saw the opportunity. The elder, Norman W. Kittson, had been Hudson Bay agent and head of a transportation company on the Red River. The younger, James J. Hill, an Ontario farm-boy who had gone west while still in his teens, owned a coal and wood yard in St Paul, and had a share in the transportation company. Neither had the capital or the financial connection required to take hold of the bankrupt company, but they kept on thinking of it day and night. Soon a third man joined their ranks, Donald A. Smith. A Highland lad who had come to Canada at eighteen, Donald Smith had spent a generation in the service of the Hudson's Bay Company, mainly in the dreary wilds of Labrador and on the sh.o.r.es of Hudson Bay. When in 1871 he became chief commissioner of the organization he had served so long and so well, it seemed to most men that he was definitely settled in his life work and probably near the height of his career. But Fate knew, and Donald Smith knew, that his career was only beginning. Coming down from the north {134} each year by the Red River to St Paul, on his way east, he talked over the railway situation with Hill and Kittson. The more they talked the greater grew their faith in the country and the railroad. It was a faith, however, that few in the moneyed East shared with them. It had been the smas.h.i.+ng of the rival road, the Northern Pacific, in 1873, that had given the signal for the brief panic and the long depression of the seventies. The Minnesota road itself had twice become bankrupt.

The legislature would undoubtedly soon declare the land-grant forfeited, unless the construction promised was completed. To fill the cup, in the middle seventies Minnesota and the neighbouring lands were visited by unprecedented swarms of gra.s.shoppers or Rocky Mountain locusts. Swarming down from the plateau lands of the Rockies in columns miles high, covering the ground from horizon to horizon, they swept resistlessly forward, devouring every green thing in their way.

When they had pa.s.sed, hundreds of deserted shacks stood silent witnesses to the settlers' despair.

[Ill.u.s.tration: Lord Strathcona. From a photograph by Lafayette, London]

It was in 1876 that the further allies needed came from the East.

Thirty years earlier George Stephen, a younger cousin of Donald Smith, had left his Highland hills to seek his {135} fortune in London, and after a short apprentices.h.i.+p there had gone still farther afield, joining an uncle in Montreal. He rose rapidly to a foremost place in the wholesale trade of Montreal; selling led him into manufacturing, and manufacturing into financial activities. In 1876 he became president of the Bank of Montreal. a.s.sociated with him in the same bank was still another shrewd, forth-faring Scot, Richard B. Angus, who had risen steadily in its service until appointed to succeed E. H. King as general manager in 1869.

A lawsuit in connection with the bank's affairs took both Stephen and Angus to Chicago in 1876. A week's adjournment left them with unwonted leisure. A toss of a coin sent them to St Paul rather than to St Louis to spend the week. Smith had already spoken of the project while in Montreal, but at that distance caution had prevailed. Now Stephen, who had never before seen the prairie, was immensely taken with the rich, deep soil he saw before him. He knew from reading and experience that gra.s.shopper plagues did not last for ever. He decided, therefore, to join in the attempt to get control of the Minnesota road and its land-grant, and the famous group was complete. {136}

Once George Stephen had made up his mind, little time was ever lost.

He sailed for Europe and interviewed the Amsterdam committee in charge of the Dutch bondholders' interests, Messrs Chouet, Weetjin and Kirkhoven. They despaired of ever seeing their money back, and were weary of being a.s.sessed by the receiver for funds to keep the road together. Stephen left Amsterdam with an option in his pocket, given for the sum of one guilder, agreeing to sell him the Dutch bonds for something like the amount of the unpaid interest, and agreeing, further, to wait until six months after reorganization for part of the payment. The next step was to provide the cash required for immediate necessities. About $300,000 was put up by the members of the group.[1]

Money was borrowed from the Bank of Montreal, $280,000 in the first advance, and something under $700,000 in all, as Stephen stated to inquiring shareholders at the bank's annual meeting in 1880. Money was advanced to the receiver to complete the most necessary extensions, those required to save the land-grant and that necessary to reach the Canadian {137} border to join the government road being built south from Winnipeg. The threatened forfeiture of the land-grant was thus averted for a time. Then the bonds were purchased for $6,780,000, the floating obligations and part of the stock were bought up, and the mortgage which secured the bonds was foreclosed. The a.s.sets were bought by the new company organized for the purpose, the St Paul, Minneapolis and Manitoba, of which George Stephen was president, R. B.

Angus vice-president, and James J. Hill general manager. Thus in June 1879 the whole system, comprising six hundred and sixty-seven miles of railway, of which five hundred and sixty-five were completed, and the land-grant of two and a half million acres, came into the possession of the little group.[2]

The after fortunes of the road, which ten years later expanded into the Great Northern of to-day, do not concern us here. It is only necessary to recount that the harvest reaped {138} by the adventurers[3] put the tales of El Dorado to shame. A few days after control of the railway had been a.s.sured, the gra.s.shoppers had risen in flight, and Minnesota knew them no more. Settlers swarmed in, the railroad platforms were jammed with land-seekers, and between the land-buyers of to-day and the wheat-s.h.i.+ppers of to-morrow the owners of the once discredited railway saw their coffers fill to overflowing. In 1879 they divided among themselves the whole fifteen millions of stock issued, floating sixteen millions of bonds for extension and equipment. For three years they took no dividends, letting the profits go to further building. Then in 1882 another $2,000,000 stock was issued, and in 1883 a deferred dividend came in the shape of a $9,000,000 issue of bonds, or, rather, the stockholders sold to themselves a $10,000,000 issue for ten cents on the dollar. Aside entirely from interest and dividends, the stockholders of the Great Northern in the seventeen years following 1889 were presented with over $300,000,000 of interest-bearing securities. {139} All the railway annals of the United States cannot present a duplicate of the startling success attained by these four or five Canadians and their a.s.sociates.[4]

These were the men to whom the Canadian government turned when the minister of Railways, Sir Charles Tupper, urged them to unload upon a private company the burden of completing the road to the Pacific.

'Catch them before they invest their profits,' was the advice of Sir John's most intimate adviser, that shrewd Eastern Towns.h.i.+ps politician, John Henry Pope. Probably they came half-way. They knew the West as well as any men, and with their road built to the Canadian boundary and with a traffic arrangement beyond to Winnipeg, they were already in the field. Of all the group Stephen was most reluctant to undertake the new enterprise, but he was a.s.sured by his a.s.sociates that the burdens of management would be shared by all. The government had also approached Duncan M'Intyre, a Montreal capitalist who controlled the Canada Central, running from Brockville by way of Ottawa to Pembroke, {140} and under construction from that point to Callender, the eastern end of the Canadian Pacific main line. He was more than willing to link up this railway with the larger project, and the group was formed.

[Ill.u.s.tration: Lord Mount Stephen. From a photograph by Wood and Henry, Dufftown. By courtesy of Sir William Van Horne]

They debated the question with the government early in 1880. It was felt, however, that negotiations could not be concluded in Canada.

More capital would be needed than even these new-fledged millionaires could or would furnish, and nowhere was capital so abundant as in London. In July, therefore, Sir John Macdonald, Sir Charles Tupper, and John Henry Pope sailed for London, accompanied by George Stephen and Duncan M'Intyre. London capitalists did not bite as freely as antic.i.p.ated. Barings and Rothschilds alike were chary about the enterprise. Sir Henry Tyler, president of the Grand Trunk, was approached, and agreed to build if the link north of Lake Superior were omitted in favour of a line through the United States, south of the lake, a condition which Sir John, strongly urged on by Tupper, would not accept. An arrangement might have been made with a London group, but only on condition of a four per cent guarantee for twelve years, another condition which, less wisely, was also rejected. In the {141} end the quest proved unavailing. It is true that the Paris firm of Cohen, Reinach and Co. entered the syndicate, and that the London house of Morton, Rose and Co. also joined. It was really, however, the New York end of that firm, Morton, Bliss and Co., which was interested.

Contrary to the general impression, the fact is, that though most of the shares when issued eventually drifted into English hands, no English financiers shared in the building of the Canadian Pacific until it was within one hundred days of completion. Perhaps, in view of the Grand Trunk's record, it was as well that the men on this side of the Atlantic were to be thrown on their own resources from the start, and given the chance for bigness which responsibility brings.

Back to Ottawa the pilgrims came, and there on October 21, 1880, the contract was signed by Charles Tupper for the government and by George Stephen, Duncan M'Intyre, James J. Hill, John S. Kennedy, Morton, Rose and Co. of London, and Cohen, Reinach and Co. of Paris. Donald A.

Smith's name was not there. It was only two years since he and Sir John, on the floor of the House of Commons, had called each other 'liar' and 'coward' and any other sufficiently strong epithet they {142} could put their tongues to, and it was to be a few years more before the two Highlanders could cover their private feud with a coating of elaborate cordiality. So, to preserve appearances, Smith's interest was kept a secret--but a very open one.

When parliament met in December 1880 the contract was laid before it.

The terms were princely. For constructing some nineteen hundred miles the syndicate were to be given free and complete the seven hundred and ten miles under construction by the government,[5] $25,000,000 in cash, and 25,000,000 acres of selected land in the Fertile Belt. They were promised exemptions from import duties on construction materials, from taxes on land for twenty years after the patents were issued and on stock and other property for ever, and exemption from regulation of rates until ten per cent per annum was earned on the capital.

a.s.surance was given that for twenty years no compet.i.tive roads connecting with the western states would be chartered: 'no line of railway south of the Canadian Pacific, except such line as shall run southwest or to the westward of southwest, nor to be within fifteen miles {143} of lat.i.tude 49.' Ten years were given to complete the task, and a million dollars were deposited as security.

The contract was received by Blake, then leader of the Opposition, and his followers with a unanimous shout of disapproval. During the Christmas recess Blake endeavoured to raise the country against it. A rival syndicate was hastily organized, with Sir William Howland, A. R.

M'Master, William Hendrie, A. T. Wood, Allan Gilmour, George A. c.o.x, P.

Larkin, James M'Laren, Alexander Gibson, and other well-known capitalists at its head. After depositing $1,400,000 in chartered banks as evidence of good faith, they offered to build the road for $3,000,000 and 3,000,000 acres less, to pay duty on all supplies imported, and to abandon the monopoly clause, the exemptions from taxation, and the exemption from rate regulation. With this weapon to brandish Blake gave the government proposal no respite, but on a straight party vote the contract was ratified by parliament and received the formal royal a.s.sent in February 1881.

It was in many ways unfortunate that from the outset the Canadian Pacific project was made the football of party politics, but it was {144} perhaps inevitable. The first duty of an Opposition is to oppose, and even if some good measures are fact.i.tiously resisted, many a 'job' is prevented by this relentless criticism. The government proposal, it would now seem, was on the whole in the country's interest, but it had weak points. In attacking these the Opposition was led on to take up a position of hostility to the whole project, while the government was equally indiscriminate in defending every jot and t.i.ttle of the bargain. In any event, with the bitter rivalry of the Grand Trunk and the Canadian Pacific looming up, it is doubtful if it could have been possible to prevent this antagonism being reflected in the politics of a country where the issues are so largely economic issues.

That the government was right in deciding for private construction and operation, there has since been little question. To build and operate a pioneer road, to make the inevitable United States connections or extensions, to undertake the subsidiary enterprises and to enter into the flexible, intimate relations with producers and s.h.i.+ppers necessary for success, were tasks for which government departments were not well fitted. With the traditions which has unfortunately become established {145} in Canadian politics, there would probably be campaign contributions in the one case and graft in the other, but in the one case, also, there would probably be efficiency, and in the other red tape and stagnation.

As to what private company should be given the contract, there seemed more room for discussion. The members of the Howland syndicate were successful and substantial business men, and their offer appeared to be much better than the offer accepted. It was, however, denounced as a sham by the government forces, on the ground that its signers knew that there was not the faintest likelihood of the ministry failing to carry through the contract it had signed. How successful the Howland group would have proved we can only conjecture; it is certainly not likely that they would have developed more courage, persistence, or enterprise than the men who actually carried out the project; nor could they have fulfilled their obligations more fully and more honourably.

The parties differed, again, on the question of the Lake Superior link.

The government urged the necessity of building at once an all-Canadian route, regardless of the added expense. The Opposition favoured such a route eventually, but urged that it was better for the {146} present to make use of a road running from the Sault through Northern Michigan and Minnesota. Such a road would bring to Montreal the traffic of the American as well as the Canadian West. Then, when our West had been settled and traffic warranted, the task of cutting a road through the wilderness north of the lake could be faced, and meantime it would not be necessary to offer any company the extravagant terms necessary to induce it to a.s.sume this burden from the start. There was much weight in this argument, which Sir Charles Tupper himself had strongly urged only a few months before, and in the light of the later Canadian Pacific extension through precisely this American territory as well as through Maine, there was much buncombe in the flag-waving answer made.

Yet, on the whole, so necessary to national unity was an unbroken road, so hard a country was this to make into one, that it was best to err on the side of safety. The political interests at stake warranted some risk of money loss.

It was, however, on the question of the form and amount of the aid offered that most controversy arose. Sir John Macdonald had lightly prophesied that in the end the road would not cost Canada a single farthing. He {147} doubtless meant that land sales would repay the expenditure; even this did not prove true, and the statement awoke unreasonable expectations as to the bargain to be made. When the contract was made public it was denounced as meaning nothing more or less than that the country was to build the road and present it gratis to the company. To antic.i.p.ate a few years, we may note the actual results at the end of 1885, when the last rail had been laid. The cost of the main line only, including the government sections, and of equipment, to that date, was approximately $150,000,000. From private sources some $50,000,000 net had been secured: the $65,000,000 stock had been sold at varying prices, realizing slightly over $30,000,000 for the treasury, and first mortgage bonds, land-grant bonds less amount redeemed, and outstanding accounts made up the balance. The government, on its part, had given, by the final arrangements, $35,000,000 cash, and completed road costing another $35,000,000; three and a half million acres of the land-grant had been sold for about $11,000,000, and at only two dollars per acre the fourteen odd million acres left were worth over $29,000,000.

On the other hand, it was urged that the aid {148} given was not so great as it seemed. The value of the government sections was particularly questioned.[6] Whatever its value, it was not more than enough to induce capitalists to run the great risks involved. The road had to be operated as well as built, and few believed that for years to come there would be sufficient traffic to make ends meet. Its future depended on the future of the West, and it needed a robust optimism at times to believe that the West would overcome frost and drought and other plagues. The fact that in 1885 Canadian Pacific stock sold as low as 33 3/4 in London, and a shade lower on this side of the water, shows the estimate the world of finance put upon the bargain it had made. Nor was the road completed in 1886. It was then only begun.

Grades had to be bettered, trestle-work filled up, extensions flung out, terminals secured, and a new road built every few years.

{149}

Looking back now, after the lapse of thirty years, it would seem that the government would have done better if it had given less of the land which was to prove so valuable, and had, instead, guaranteed the dividend on the stock for a term of years. In the eighties, however, western acres were held in little esteem and money guarantees, with Grand Trunk memories fresh, looked dangerous--and it was in the eighties that the decision had to be made.

[Ill.u.s.tration: Sir William Cornelius Van Horne. From a photograph by Notman]

More valid was the criticism of the remaining terms. The exemption from duties was wise, if inconsistent in a protectionist government, and the exemption from regulation of rates until ten per cent was earned had a precedent in a clause in the General Railway Act, not repealed until 1888, exempting all roads from such regulation until fifteen per cent on the capital invested had been earned. The exemption from taxation, however, was an unwarranted privilege, throwing undue burdens on homesteading settlers; and the interpretation afterwards given that the exemption on lands extended until twenty years after the patent had been issued still further increased the difficulty. Objectionable, also, was the monopoly clause, barring United States {150} connections for ten years. It was claimed that this exemption was essential if traffic was to be secured for the Lake Superior link, and essential also if capital was to be secured from England. The Englishman, one of the heads of the road declared, hated a monopoly at home as he hated the devil, but he looked with favour on monopolies abroad. The monopoly clause, as will be seen later, for a time did more to split East and West than the Lake Superior link did to bind them together in spirit.